What is an alligator spread?

An alligator spread is a mocking term for an option combination of call and/or put options that cost so much commission that it becomes virtually impossible to make a profit, regardless of how the market develops, even if it moves exactly as expected.

The term refers to how transaction costs "eat up" all profits, similar to the appetite of an alligator. This term highlights the risks and costs associated with complex option strategies.

Version:
27/9/24